O2-Virgin Media £31bn merger cleared by UK competition watchdog

The UK competition watchdog has provisionally cleared Virgin Media’s £31bn tie-up with mobile operator O2 after finding it was unlikely to lead to reduced competition or higher prices for wholesale mobile services.

Liberty Global and Spanish group Telefónica, the respective owners of Virgin Media and O2, struck a deal to combine their UK operations in May 2020, which will unite the country’s second-largest broadband network with its largest mobile operator. 

“The deal is unlikely to lead to higher prices or a reduced quality of mobile services — meaning customers should continue to benefit from strong competition,” said Martin Coleman, Competition and Markets Authority panel inquiry chair.

Initial clearance by the CMA was widely expected within the telecoms industry after regulators allowed BT to acquire EE, a similar broadband-mobile deal, for £12.5bn in 2016.

Virgin Media’s combination with O2, structured as a 50-50 joint venture, will create a stronger competitor to BT in the UK market and signals a fresh wave of consolidation within the European telecoms industry. 

The CMA fast-tracked the landmark deal to an in-depth investigation in December at the companies’ request. Its probe looked at whether the tie-up would affect the market for “virtual” operators that use mobile networks such as O2’s to offer services to customers. HMD Global, the Finnish phonemaker, agreed a deal last week to launch in the UK using the EE network.

The CMA said on Wednesday that there would still be a choice of companies providing mobile networks for virtual operators to use, meaning O2 would be forced to maintain a competitive service.

The regulator also said Virgin Media was unlikely to be able to raise costs for the supply of leased lines — known as backhaul — to mobile operators in a way that would result in higher charges for customers. It concluded there were also other players in the market offering the same service, such as BT’s Openreach.

Leased lines connect mobile masts to the telecoms grid and are set to become increasingly important in the 5G era due to the large volumes of data being transported over the network. 

Liberty Global and Telefónica said in a joint statement that they “continue to work constructively with the CMA to achieve a positive outcome and continue to expect closing around the middle of this year”. The two companies have already started preparing to integrate after naming Lutz Schüler, the head of Virgin Media, as chief executive of the combined company last week. 

The competition investigation was one of several which Brussels and the UK tussled for control over in the run-up to Brexit, when the CMA became an antitrust regulator in its own right.